Providing a well-structured employee benefits program (e.g., medical, life, disability, and retirement plans) can go a long way toward attracting and retaining an appropriately skilled workforce; but doing so is not without its challenges. Employers need to weigh carefully the human resource advantages of providing benefits against the obligations they undertake in doing so. Establishing a balance between employee benefits and obligations is especially difficult because of the legal rules governing employee benefit plans that have been established under the Employee Retirement Income Security Act of 1974 (ERISA) . At the same time, benefit plan fiduciaries and plan sponsors today confront increasingly active and sophisticated plaintiffs with experienced attorneys. Due to tightened legal rules for bringing securities cases, there has been a recent influx of skilled counsel from the securities field to the benefits arena, increasing both the chances that ERISA lawsuits will be filed and their potential financial impact when they are.
Under the Employee Retirement Income Security Act of 1974, fiduciaries (owners and management) can be held personally liable for losses to a benefit plan incurred as a result of their alleged errors, omissions, or breach of their fiduciary duties. By accessing the advice of experts and choosing quality diverse investments, fiduciaries can mitigate their exposures to personal liability, but not eliminate them. Lawsuits against a privately owned company, its fiduciaries, and its plans can be brought by a host of parties, including plan participants (employees) and their legal estates, as well as the Department of Labor and the Pension Benefit Guarantee Corporation.
People who perceive they have been wronged react with lawsuits that can cost millions of dollars to defend and settle.
Here are examples of the most frequent kinds of claims:
- Denial or change of benefits
- Administrative error during enrollment
- Incorrect benefit calculation
- Improper advice or counsel
- Misleading representation
- Wrongful termination of plan
- Failure to properly fund the plan
- Lack of investment diversity
- Conflict of interest
Fiduciary Liability Insurance offers one of the best methods of risk transfer. Most policies provide coverage for employment benefit plans, pension benefit plans, or welfare benefit plans defined in ERISA, as well as any other plan or program not subject to ERISA that is sponsored solely by the employer for the benefit of its employees. It can include the cost of civil penalties, defense coverage, employees, and administrators. A number of insurers can provide a Management Liability Policy that includes employment liability, directors & officers, professional and fiduciary coverage.